European companies and trading houses are not rushing to buy Iranian oil because of legal uncertainties over the lifting of sanctions that are likely to take weeks to clarify.
A lack of dollar clearing, the absence of an established mechanism for non-dollar sales, insufficient clarity on ship insurance and the reluctance of banks to provide letters of credit to facilitate trade are all giving cause for caution.
Iran used to sell as much as 800,000 barrels per day to European refiners in Italy, Spain and Greece before sanctions over its nuclear program were imposed. European markets have since been inundated with extra oil from Saudi Arabia, Russia and Iraq, Reuters reported.
The Islamic Republic ordered a 500,000-bpd increase in oil output, of which 200,000 bpd are destined for Europe, after the nuclear-related international sanctions were lifted.
But Russian oil major Lukoil's chief executive, Vagit Alekperov, said it was still not clear whether the company's refineries in Italy or the Netherlands were free of legal risks to buy Iranian oil.
"It is all clear on the petrochemical side. We can transfer the money and buy and sell their products. On the crude side, our lawyers are looking into this," he told Reuters on the sidelines of the World Economic Forum in Davos.
Marco Dunand, chief executive of Swiss trading house Mercuria, also said a lot of additional explanatory work needs to be done by European governments on how ship insurance and banking would now work before imports to Europe resume.
Old Customers
Market players, however, expect that companies which bought Iranian crude before the sanctions—such as Royal Dutch Shell, Total, Eni, Hellenic Petroleum and traders such as Vitol and Glencore—will resume purchases at some point later this year.
Iran has reportedly stored 40 million barrels of crude in tankers and has said it is keen to regain its former customers, even as oil prices keep falling due to global oversupply.
After the initial export boost, Iran hopes to raise output further by as much as 1 million bpd within a year and attract more investments from oil majors in the future.
Lukoil's Alekperov said he believed it would take five to seven years for Iran to boost output significantly and that this would happen if the Islamic Republic put the right legislation in place to compete for investments.
Total and Eni have also said they would invest in Iran only if Tehran offered attractive terms materially different from its previous buyback schemes or Iraq's servicing contracts, which made many companies no money.
